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April 30, 2002

Federalize Vaccine Production? We’d Be Taking a Shot in the Dark

Since the anthrax scare last fall, there have been calls for the federal government to set up a National Vaccine Authority. Hoover fellow Henry I. Miller and Sam Kazman explain why that would be a mistake—with deadly consequences.


The spate of anthrax-laden letters following closely

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on the terrorist attacks of September 11, 2001, was the first significant use of biological agents in the United States by terrorists. It is certainly cause for concern, but so is one proposed government response: federalizing vaccine production, a recommendation contained in two independent reports released last November by the Institute of Medicine (IOM) and the Gilmore Commission, the federal advisory panel on terrorism.

The IOM calls for the creation of a National Vaccine Authority that would have sweeping responsibilities, including market research, setting priorities, control of intellectual property rights, conducting in-house research and development, and financing clinical trials of candidate vaccines. Similarly, the Gilmore Commission recommends "the establishment of a government-owned, contractor-operated national facility for the research, development, and production of vaccines for specified infections." Dismissing a primary role for the private sector, it argues that "direct government ownership or sponsorship is likely to be the only reasonable answer for producing vaccines" for such diseases as anthrax and smallpox.

"Federalizing the vaccine industry would be at best unnecessary—and, more likely, dangerously counterproductive."

But others (including these authors) disagree and believe that the crisis in vaccine development and production is largely of the government’s making. Dr. Cornelia L. Dekker, former senior executive at a vaccine company, now a Stanford Medical School pediatrician and infectious disease specialist, described the problem thusly: "You’ve got a booming demand for vaccines that people think cost only pennies, coupled with increasing regulatory burdens that cost companies millions. In short, the current shortage situation was, unfortunately, predictable."

The appearance late last year of cases of inhalational anthrax in humans—the first in this country in a quarter-century—coupled with the fear of further use of biological agents, has fueled interest in vaccines against various exotic diseases. Moreover, the media have seized on the possibility of terrorists obtaining and using various bioterror agents, including smallpox virus, considered by many experts to be the most potentially devastating of all infectious agents. Smallpox is highly contagious, and infections are fatal in approximately a third of unvaccinated populations.

The German government has bought six million doses of vaccine, and pressure is mounting in the United States for widespread, or even universal, vaccination. (Routine smallpox vaccinations ceased in the United States in 1972.) The Department of Health and Human Services has contracted for sufficient doses of the vaccine to immunize virtually every person in the country.

Federalizing vaccine production would obviously ride the political currents that are expanding government control over a host of activities that touch on national security (or can be spun as relevant to national security), but the history of government manufacture of pharmaceuticals is far from encouraging.

Consider, for example, the decades of production of human growth hormone for hormone-deficient short children by the National Pituitary Agency. This program, conducted from 1963 to 1985 under the auspices of the National Institutes of Health (NIH), was a haphazard operation. The hormone was prepared from human pituitary glands recovered from cadavers, and the absence of rigorous collection guidelines and purification procedures permitted contamination of the formulated drug with the slow virus that causes Creutzfeldt-Jacob disease, the human equivalent of bovine spongiform encephalopathy (BSE), or "mad-cow disease." As a result, several dozen recipients have died a lingering and gruesome death.

If this had been undertaken by a drug company, the threat of competition and fear of liability would have spurred frequent updating of the drug’s purification and formulation with state-of-the-art technologies. Moreover, the nation’s drug regulator, the Food and Drug Administration (FDA), would have required rigorous adherence to government regulation. But when government is itself the manufacturer, these forces are attenuated and the shield of government safety regulation is weakened. The FDA is a sibling agency of the NIH, and their common political interests created a conflict of interest that compromised vigorous oversight over the NIH’s production of human growth hormone.

The recent history of the privately produced anthrax vaccine might appear to offer a counterexample—that is, to support more government involvement. The vaccine’s producer, the Lansing, Michigan–based BioPort Corporation, has experienced recurrent regulatory difficulties, ranging from poor quality control to lax record keeping, and its ability to manufacture was suspended by regulators from 1998 until January 2002.

But BioPort is hardly a typical pharmaceutical company. It is the sole supplier of anthrax vaccine for the defense department, its primary customer, and one of its four board members is a former member of the military’s Joint Chiefs of Staff. More important, until late 1998 it was not a private-sector operation at all; its facility belonged to the Michigan Department of Public Health. And many, if not all, of BioPort’s problems originated when it was a government-run institution. According to the General Accounting Office, FDA inspectors were given only limited access to the plant and the FDA was not promptly notified about important changes in the vaccine manufacturing process. In 1990 the facility altered the filters it used to purify the vaccine, a change that could affect the product’s safety and efficacy. Such an alteration in process ordinarily requires the submission to the FDA of comparative data to ensure that the product is not compromised, but by the time the FDA learned of this change, there were no more pre-1990 batches of the vaccine to compare against the later product. In 1993, the state public health department added several new fermenters, for which the FDA repeatedly requested documentation. Not until seven years later, after BioPort took over the facility, was that documentation submitted to the agency.

There were apparently two reasons for these lapses by both the manufacturer and regulators: There were no alternative sources of the vaccine, and the FDA was less likely to come down hard on a government enterprise, especially one whose primary customer was yet another government entity—the Department of Defense.

In summary, the anthrax vaccine’s problems appear to originate not within BioPort in its relatively recent incarnation as a private company, but date from the period before 1998 when it was run by the government, and are the result, at least in part, of the absence of competition to make such products.

History shows repeatedly that the private sector, not the government, is better suited for product design and manufacture. It has been a long time since the government itself produced munitions, for example. One impetus for its getting out of the business was the catastrophe that occurred in 1845 during the USS Princeton’s initial tests of new 12-inch guns. The first candidate, which had been designed by a navy captain, exploded, killing the secretary of state, the secretary of the navy, a naval captain, and a Maryland congressman, among others. Had President Tyler not been delayed belowdecks, he, too, would likely have been killed.

Leaving aside BioPort’s manufacturing problems, the design of the anthrax vaccine is antiquated. And the existing smallpox vaccine is even worse. It consists of live vaccinia virus, which is closely related to the smallpox virus, and it is not very different from the one introduced by the English physician Edward Jenner in the 1790s.

Terribly impure and crude by the modern standards of gene-spliced, or genetically modified, vaccines such as those that have been deployed against hepatitis B since the mid-1980s, the smallpox vaccine can provoke various serious side effects. These include rashes spread from the inoculation site to face, eyelid, mouth, or genitalia and generalized infection. Approximately 1 in every 300,000 vaccinations causes encephalitis, which can lead to severe and permanent neurological damage; between one and three out of every million vaccinated die.

Although 60 percent of Americans polled recently said they would take the vaccine if it were available, that number of immunizations would be expected to kill at least a couple of hundred Americans and to maim and disfigure many others. (And this is a disease that was eradicated from nature decades ago.)

What we should be seeing (and encouraging) is biotech companies scrambling to use the new biotechnology (gene-splicing) and recent knowledge about the organism that causes anthrax to make purer, safer, more effective vaccines—similar to the stampede by pharmaceutical and biotech companies in the 1980s to produce second-generation hepatitis B vaccines. There are now a half-dozen or so on the market, and they have reduced the incidence of hepatitis B in the United States by more than 70 percent.

A federal move to take over vaccine design and production could replicate, on a far greater scale, the problems of both the current anthrax vaccine and government-produced human growth hormone. Federalization of vaccine production would be ominous for the future of pharmaceuticals generally. In recent years, the industry’s long-term survival has become increasingly imperiled by the controversy over drug prices. But the old saw about pharmaceuticals is especially true today: The first dose costs hundreds of millions of dollars to produce, while the rest cost pennies apiece. New drugs are hugely expensive to develop and test; the time from discovery to marketing may well take 12–15 years, at an average cost of $802 million, according to a recent estimate by the highly respected Tufts University Center for the Study of Drug Development.

"If the incentive for companies to invest in drug production is destroyed, then we’ll be left with a system in which the government is not only the major purchaser of drugs but also the only major source of drug research and development. Governments may be good at certain things but not at technological innovation."

Drug development is a gamble with poor odds; thousands of candidates must be tested in order to produce one successful product, and even among drugs that are ultimately approved for marketing, only one in three generates revenues that cover development costs. For that reason, blockbuster drugs are doubly important—they not only advance public health but also cover the costs of the industry’s countless scientific and commercial flops. (It must be recognized, however, that for vaccines against certain "exotic" diseases, there exists a market failure; not only will blockbusters be unlikely, but future demand may be uncertain, and the government may be the primary purchaser.)

Yet another challenge to the pharmaceutical industry is the integrity of intellectual property rights for its products. When Health and Human

Services secretary Tommy Thompson last year encountered difficulty negotiating what he considered a sufficiently discounted price for government purchases of the antibiotic Cipro for the treatment of anthrax, he threatened to break Bayer’s patent. Not surprisingly, he ended up getting a better price, but his extortionate tactics sent an unmistakable message to an industry that this year will spend in excess of $30 billion on research and development: If you come up with something of tremendous worth, something that society vitally needs, the government just might decide to invalidate your patent. This realization cannot be comforting to companies pouring billions of dollars into the development of vaccines against AIDS and Alzheimer’s disease.

Moreover, Thompson’s action encouraged the growing opposition, international as well as domestic, to drug patents. Unlike many impoverished countries, the United States cannot plead poverty in its dealings with Bayer. Yet if the United States, with its wealth and its reputation for respecting property rights, could act so cavalierly in its quest for a better deal on Cipro, then what is the lesson for other countries?

"Ignoring patents in the face of a public health emergency might offer quick medical relief, but it would dangerously undermine the prospect of treatments for future crises. It would make good health seem like bad business."

The answer wasn’t long in coming, from last year’s international trade negotiations in Doha, Qatar. The World Trade Organization expanded the ability of less-developed nations to override drug patents and authorize cheaper generic copies in the name of public health. Prior to Doha, poorer countries could override a patent in the face of medical emergencies; now, however, they might be able to do so on almost any public health pretext. In the words of one exuberant delegate (from a country whose generic drug industry stands to benefit greatly from the new policy), this is a development which "even six months ago . . . was unthinkable."

A country’s ability to disregard patents in the face of public health emergencies might offer quick medical relief, but it dangerously undermines the prospect of treatments for future crises. It makes good health seem like bad business. Why should any company take the risk of investing vast sums in developing new drugs, if the more successful and important the drug, the more likely that its patent will be invalidated? And if that incentive for companies to invest is impaired, then we are left with a system in which government must become not only the major purchaser of drugs but also the major source of drug research and development.

That is not an inviting prospect. Governments may be good at certain things, but they are rarely good at technological innovation. It would never occur to us to look to the U.S. Postal Service for breakthrough communication technologies or other innovations; it didn’t launch Express Mail, after all, until years after Federal Express’s breakthrough introduction of overnight mail, and the postal service’s version is still far less reliable. And companies like United Parcel Service have taken over what used to be the postal service’s parcel post. Do we really want a postal service model for developing new medicines?

All this brings us back to the proposals to federalize the vaccine industry. At best, federalization is unnecessary; more likely, it will be dangerously counterproductive. Government can address real and potential emergencies by contracting for large purchases of vaccines or by guaranteeing minimum sales. But making vaccine research, development, and production a wholly government-operated—or even government-directed—enterprise would do little to advance either the safety of current vaccines or the development of new ones. It is far better, surely, to apply the kinds of incentives that encourage pharmaceutical companies to develop "orphan drugs" (those intended for small patient populations), and to remove the regulatory and other disincentives that currently make vaccine development so unattractive and uncompetitive.


Henry I. Miller, MS, MD, is the Robert Wesson Fellow in Scientific Philosophy and Public Policy at the Hoover Institution. His research focuses on public policy toward science and technology encompassing a number of areas, including pharmaceutical development, genetic engineering in agriculture, models for regulatory reform, and the emergence of new viral diseases.



Special to the Hoover Digest.

Available from the Hoover Press is To America’s Health: A Proposal to Reform the Food and Drug Administration, by Henry I. Miller. Also available is The Greening of U.S. Foreign Policy, edited by Terry L. Anderson and Henry I. Miller. To order, call 800-935-2882.